How Term Insurance Can Help You Save Income Tax

Under a term insurance plan, a nominee receives a sum assured in the form of death benefit in case of untimely demise of the policyholder during the plan duration. In case, the life assured outlives the plan term, then no death benefit would be given. However, by opting for a return of premium option, upon surviving the complete plan duration, the life assured would get all the premium amount.

How Term Insurance Helps in Saving Taxes?

The Government of India and Income Tax Department in order to offer tax benefits to individuals have created provisions for tax deduction towards the premium payment of term insurance plan. These deductions lower the taxable income of the policyholder so that they can save taxes till the term insurance plan continues to exist.

Under a term insurance policy, the policyholder is eligible to receive tax benefit as per 2 sections of Income Tax Act:

• The premium paid towards the term insurance plan would be tax exempt according to section 80C of the Income Tax Act.
• The policyholder would get tax exempt benefit according to section 10(10D) for plan maturity benefits upon availing term insurance cover with TROP option.

Tax Benefits With Term Insurance Plan

Let us understand in detail about tax benefits received under a term insurance plan:

• Section 80 C of the Income Tax Act

To avail a term insurance plan and continue receiving life cover and benefits, the policyholder needs to pay monthly/quarterly/half-yearly/yearly amount as premium to the insurance provider. The premium payment made towards term insurance plan is tax deductible up to maximum 1.5 Lakh per annum from the overall income of the customer. However, it is applicable for individuals who have availed the insurance plan before 31st March 2012.

Individuals, who have got their insurance plans issued post 1st April 2012, would receive 10% tax deduction benefit. This results in deduction in overall taxable income, which is quite beneficial for the policyholder.

Moreover, tax exempt as per section 80C of the Income Tax Act can be availed by both members of Hindu Undivided Family (HUF) and individuals. In case of individuals, the tax exempt can be claimed by either them, their spouse or children. It is the most common tax exempt as per section 80 C of the Income Tax Act.

• Section 10(10D) of the Income Tax Act

aThe aim of purchasing a term insurance plan is to receive financial aid at the time of distress or in case of any unforeseen event. In the event of an untimely demise of the policyholder during the plan tenure, the complete amount is given to the nominee without any tax exempt as per section 10(10D). Towards the end of the term insurance plan with the return of premium, the entire amount which is given to the policyholder is exempt from tax.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.